May 16 (Bloomberg) -- A gauge of U.S. corporate credit risk
increased as a Greek caretaker government will prepare new
elections probably on June 17 that may decide whether the
country should remain a euro member.

The Markit CDX North America Investment Grade Index, a
credit-default swaps benchmark that investors use to hedge
against losses on corporate debt or to speculate on
creditworthiness, rose 1.6 basis points to a mid-price of 119
basis points at 5 p.m. in New York, according to prices compiled
by Bloomberg. The gauge has been rising for 10 straight days,
the longest streak since July 2007. Contracts linked to Pepsico
Inc. rose by the most since October 2008.

The swaps index gained as uncertainty surrounding Greece’s
status on the single currency outweighed better-than-expected
U.S. economic numbers. Builders in the U.S. broke ground on more
homes than forecast as starts rose 2.6 percent to a 717,000
annual rate from March’s revised 699,000 pace, Commerce
Department figures showed today in Washington. Industrial
production climbed 1.1 percent, the most since December 2010,
the Federal Reserve said.

“You are going to get these little reprieves,” said Jacob
Oubina, a senior U.S. economist at RBC Capital Markets LLC in
New York. “We have also had comments from European leaders
suggesting they don’t want Greece to exit the euro.”

A Bloomberg survey of economists called for a 0.6 percent
advance in industrial production and another one estimated
685,000 housing starts.

‘Fragile Recoveries’

The European Central Bank President Mario Draghi said that
the governing council’s “strong preference” is that Greece
stay in the Euro in a speech in Frankfurt today.

“That is a bit of relief for risk, but not enough to quell
the bigger issue,” Oubina said. “We are in a recovery that is
one of the most fragile recoveries in history and that leaves
you unprepared for any sort of financial crisis.”

The ECB has no immediate plans to increase stimulus
measures as it reviews its policy tools, two euro-area officials
said, even as concern mounts that Greece won’t honor its bailout
agreements.

“European authorities tend to respond to the rising
financial market pressure and not ahead of it,” JPMorgan Chase
& Co. analysts said in a research note. “There is little
evidence that a credible plan is being agreed to ring-fence
other European peripherals.”

Pepsi CDS

The swaps index typically increases as investor confidence
deteriorates and falls as it improves. The contracts pay the
buyer face value if a borrower fails to meet its obligations,
less the value of the defaulted debt. A basis point equals
$1,000 annually on a contract protecting $10 million of debt.

The cost to protect against losses on the debt of Pepsi
rose by the most since Oct. 22 2008 as activist shareholder
Ralph Whitworth’s Relational Investors LLC has built a stake
worth about $600 million as of March 31, the company said
yesterday in a regulatory filing.

“Whenever activist investors garner ownership in a
company, they agitate management to force change on the
company,” Carla Norfleet Taylor, an analyst at Fitch Ratings,
said in a telephone interview. “The CDS spreads are rising as
bondholders are wondering if there is any imminent change.”

Whitworth has used his shareholdings in the past to push
for changes at ITT Corp. and defense contractor L-3
Communications Holdings Inc., before they announced spinoffs in
2011.

“Over the past several months, there has been a debate on
whether Pepsi should separate its beverage business from the
food business,” Taylor said. “If that happens, bondholders are
thinking about how such a move will affect their debt.”

Pepsi had $22.1 billion of long-term debt obligations as of
March 24, according to an April 26 company filing.